Two New Documents Fight Greenwashing in Financial Sector

Two New Documents Fight Greenwashing in Financial Sector

Though many financial institutions have been accused of greenwashing, two new documents have been issued to hold companies and banks to their net-zero pledges. The first is from the Basel III Monitoring Report, a group of financial regulators from across the globe that has put together a framework for banks to evaluate how climate change affects their businesses. International banks, like Goldman Sachs, Deutsche Bank, and HSBC, will use this checklist to see if they are properly quantifying the risks of climate change in all aspects of their business strategy, from training senior staff and board members to internal controls and pay.

The second document is the Net Zero Stocktake 2022, a report just released at the global climate talks in Bonn, Germany. It shows that many of the world’s largest public companies aren’t backing up their net-zero pledges. Rather than reducing their emissions, several are relying on carbon offsets and haven’t set interim goals for reducing emissions in the short term.

“But we still see this credibility gap -- [there’s] a momentum of quantity, but not yet a momentum of quality. And that’s really where the emphasis needs to be now for the next steps forward,” said Frederic Hans, a climate policy analyst at NewClimate Institute, one of the nonprofits that produced the report.

Now This: Everything You Need to Know About Greenwashing, January 22, 2021.

DW: Banks increase funding for fossil fuels despite 'net zero' pledges, February 15, 2022.

DW: Why carbon offsets are worse than you think, January 21, 2022.

Why This Matters

The financial sector needs to be held accountable for its climate pledges. Many banks that have made net-zero pledges have undermined these commitments by continuing to invest in fossil fuels. Twenty-five European banks have provided $400 billion for fossil fuel projects since 2016. Meanwhile, in the last six years, the world’s most powerful banks, like JPMorgan Chase, Citi, Wells Fargo, and Bank of America, have invested $4.6 trillion into fossil fuel projects, even though they have signed onto a commitment to go net zero.

In 2021, 60 of the world’s largest banks invested $742 billion in financing for fossil fuel projects, $52.9 billion of which went into offshore oil drilling. Many Canadian banks are among the top fossil fuel lenders in the world, and have set “intensity-based” emissions reduction targets that ultimately allow total emissions to grow. Global carbon-dioxide emissions need to fall by about 45% from 2010 levels by 2030 to limit global warming to 1.5 degrees Celsius, meaning that financial institutions and companies have to put their money where their mouths are -- literally.

NowThis: Sheldon Whitehouse on Greenwashing and Fossil Fuel Industry, May 14, 2021.

TED: Carbon Offsets | The Big Lie | David Detzler, June 16, 2021.

Reuters: World could see 1.5C of warming in next five years, May 10, 2022.

Are These Goals Greenwashing?

More than one-third of the world’s largest publicly traded companies now have net-zero targets, but it remains to be seen if these companies have strong enough plans to reach them. Additionally, the Net Zero Stocktake found that 65% of corporate net-zero targets do not yet meet minimum procedural standards of robustness.

The fossil fuel industry, perhaps surprisingly, has the second-highest percentage of net-zero targets. But many of these targets rely overwhelmingly on unrealistic carbon offset plans. For example, Shell has said it wants to plant trees covering an area the size of Brazil.

Meanwhile, the Basel Framework aims to ensure that banks’ investments align with their outward commitments to climate change. The policy ensures banks’ “internal strategies and risk appetite statements are consistent with any publicly communicated climate-related strategies and commitments.”

CNBC: Why climate change could lead to a financial crisis (and what we can do about it), May 6, 2021.

“When we look at the scientific findings . . . released by the International Panel on Climate Change, emission reductions need to happen now, within the next five to seven years toward 2030.” said Hans to Fast Company. “There is no way of sort of postponing that action and just aiming to achieve net zero further down the line. It actually needs to happen now.”

Our Eden: Your Bank is Funding Climate Change, November 13, 2021.

NBC: Are Major Companies Living Up To Their Net-Zero Pledges To Combat Climate Change?, February 10, 2022.